Rising African tide floats global brewers' boats

LONDON/JOHANNESBURG, June 17 (Reuters) - An African has to work three hours on average to afford a beer, compared with 12 minutes for a European, and yet the continent is the global hot spot for beer growth, such that the world’s big brewers are struggling to keep pace.

Mark Bowman, Africa boss for global brewer SABMiller , is building new breweries in Nigeria, Uganda and Zambia this year and expanding those in a string of other nations.

His African beer volumes, minus the relatively mature South African market, rose in excess of 10 percent for the last two years as he siphoned off custom from the homebrew sector, which is over three times the formal market.

A booming population and above-average economic performance, backed by buoyant mining and energy industries, are behind the growth, which is running hotter than in Latin America and Asia.

“Africa remains an extremely attractive place for consumer goods companies. From a macro perspective, it has a growing population and is enjoying GDP growth across most markets,” Bowman told Reuters.

Four big brewers - SABMiller, Heineken, privately owned Castel and Diageo - control more than 90 percent of the $11 billion African market, and they are ploughing in millions.

Beer is the drink of choice in the upmarket suburban areas of Johannesburg and also in the townships that circle the city, whether it is SABMiller’s top brews Castle and Carling Black Label or Heineken’s eponymous brew and Amstel, but price is a challenge for less well off drinkers.

The unlicensed shebeens in Alexandra township provide a beer for those returning from work, such as 31-year-old Amstel drinker Siphiwe Dlamini, a part-time film industry worker.

“It’s not busy today because it’s Monday. People like to take it easy on Monday, and, besides, the beer is not cheap. A lot of people between now and the weekend drink homebrew beer. It’s much cheaper,” he said.

SABMiller’s Bowman is hoping to woo homebrew drinkers with its own beers made from local crops sorghum and cassava. Buyers not only get consistent quality but a price tag that is a third less than mainstream beers.

Bowman plans to spend $400 million to $500 million a year for three to five years to build two or three breweries a year and revamp others in Africa, while he also increases production of its own “homebrewed” sorghum-based cloudy chibuku beer.

UNTAPPED POOL

Analysts estimate African beer volumes rose around 7 percent in 2011, but stripping out the mature South African market, which accounts for over a quarter of the continent’s beer, then growth was well over 10 percent.

“Africa is likely to be one of the key long-term growth drivers for the global beer category,” said industry analyst Trevor Stirling at brokers Bernstein Research.

Analysts say Africa’s population growth of 2.4 percent a year outpaces the 1 percent growth in Latin America and Asia, with Africa’s 1 billion population set to double by 2050.

Annual GDP growth of 5 percent is also a draw; the International Monetary Fund forecasts that seven of the 10 fastest-growing economies through 2015 will be in Africa, with Ethiopia, Tanzania and Mozambique in the top five after China and India.

With annual African per capita beer consumption only 8 litres, compared with a global average of 35 litres - stepping up to around 70 litres in western Europe and North America - there is a huge pool of potential to be tapped.

SABMiller, founded in 1895 to slake the thirst of gold prospectors around Johannesburg, now brews 35 percent of the continent’s beer, with its 90 percent of the South African market accounting for 60 percent of that volume.

Bowman’s Africa region excludes South Africa and covers eastern Africa from Mozambique to southern Sudan plus Nigeria and Ghana. He is forecasting annual volume growth of 6-8 percent, helped by sorghum beer Eagle, introduced in Uganda in 2004, and last year’s first cassava beer Impala in Mozambique.

Using local ingredients helps to make beer cheaper, and has encouraged politicians to oblige with lower excise taxes for the finished products.

RISING TIDE

Africa’s No 2 brewer Heineken brews 22 percent of its beer, with more than half of that in Nigeria. Other big markets are the Democratic Republic of Congo and Egypt, and it spent $163 million on two Ethiopian brewers last year.

Amsterdam-based Heineken has a near-70 percent market share in Nigeria, the continent’s most populous nation and its second biggest beer market, and the West African nation is the group’s second most profitable market worldwide after Mexico.

“The perfect combination of a young and fast-growing population, developing middle class, strong GDP growth and improving political stability makes Africa an exciting opportunity,” said Africa and Middle East chief Siep Hiemstra.

Fractionally behind is Paris-based Castel, also with a 22 percent share. Angola and Cameroon account for half its volume. It has close links with SABMiller, which is keen on a $10 billion takeover of Castel’s African operations.

SABMiller took a 20 percent stake in the French group’s beer and soft drinks interests in Africa, and Castel acquired a 38 percent share in SABMiller’s African subsidiary back in 2001. Early this year they strengthened their links by agreeing mutual pre-emptive rights over each others’ beverage units in Africa.

Castel was founded in Bordeaux in 1949 by nine brothers and sisters and is led by the octogenarian founding chairman Pierre Castel. As succession becomes an issue, analysts say SABMiller would love to do a deal to merge their operations and give it control over 57 percent of Africa’s beer.

Diageo operates in Africa through its Guinness beer business and spirits such as Johnnie Walker and Smirnoff. Around 70 percent of its African business is in beer, with the bulk in Nigeria and East Africa.

It has 12 percent of the regional beer market and its annual growth there is expected to rise above its current 15 percent.

“There is a rising tide in Africa driven by strong economic fundamentals,” said Nick Blazquez, head of Diageo Africa.

The group is spending to catch that tide.

Earlier this year it bought Ethiopia’s Meta Abo Brewery for $225 million to give it number two position in a nation more populous than Germany.

If Ethiopians ever match German beer consumption, that will make for quite a return on investment.